# 5 has 9 possible answers MC Enter your best answers into the spaces provided b
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# 5 has 9 possible answers
MC Enter your best answers into the spaces provided below: 4 10 1819 20 11. 12. 13. 14. 15. 16. 17 1. A trader buys a put option for $6 that gives the right to sell a share of stock for $100. The stock price is $98. In this situation the option is a. ATM b. OTM c. ITM by $2 d. ITM by $4 e. ITM by $6. 2. A person that takes the option position to sell the right to sell an underlying stock is a a. b. c. d. e. call option buyer. call option seller. put option buyer. put option seller. none of the above. 3. Which of the following points to option transactions that do not need a margin deposit? A margin is needed when the transaction involves possible default. a. long call. b. short call. c. covered call. d. a and b e. a and c. f. all of the above. 4. Which of the following is/are volatility trading strategies? bull spread. a. covered call. b. straddle c. butterfly Spread. d. none of the above. e. a and b. f. a and c. g. c and d 5. Which one of the following option is/are path-dependent? a. binary option. b. Asian option. c. lookback option. d. American option.Explanation / Answer
1. (c) The put option is in the money by $2
2. (d) The person is writing a put option. It is the right to sell the put option.
3. (c) Neither covered call not covered put needs margin requirement, because the underlying stock could be used as a collateral.
4. Covered Call needs volatility in stock to derive good return in the strategy, other two are low volatility trading strategy. Option (a)
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